




Variance is a measure of volatility. Variance is calculated as the average squared deviation from the mean. The Capital Asset Pricing Model uses variance as a measure of investment risk. Investments with higher volatility (variance) have greater risk. CAPM postulates that the risk (variance) of an investment portfolio consists of both market risk and specific risks associated with each asset. While market risk is unavoidable, portfolio variance can be minimized and the risk associated with specific assets reduced if the investor owns a diversified mix of assets. Most financial advisors seek to minimize portfolio variance for their clients by recommending that they invest in a diversified portfolio which includes both large and small market capitalization domestic stocks, as well as bonds, international equities and real estate.
Rate this variance definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: reverse mortgage, required rate of return, per diem, debt service coverage, phantom income, open position, labor relations, covered put, APR, deferred revenue, annual return, balance sheet, exdividend, FICO score, implied volatility, irrevocable trust, 144a, dividends payable, LIBOR, real GDP, current ratio, VIX, quality assurance, Zero Cost Collar, option premium, class C shares, whollyowned subsidiary, EBITDA, command economy, deferred tax, 1031 exchange, FTSE, stock split, 1035 exchange, exdividend date, inflation, retained earnings, minority interest, stock market close, Key Rate Duration, average price per share, cancelled check, risk management, diluted share, margin rate, limit order, 401a, liquidity ratio, in escrow


 